1 Consolidated Financial Statements Flashcards
What is a parent?
An entity that controls one or more entities
What is a subsidiary?
An entity that is controlled by another entity
What is a group?
A parent and its subsidiaries + associates
Describe IFRS 10
This details the single entity principle, which means that a group should be presented as a single economic entity. All intra-group transactions should be eliminated
What is an associate?
When there is significant interest
What is the % control for a subsidiary?
> 50%
What is the % control for an associate?
20-50%
What is an investment?
Something gained for increasing wealth
What % control is an investment?
<20%
How do you consolidate a subsidiary?
Fully consolidate using the acquisition method
How do you consolidate an associate?
Using equity accounting
How do you consolidate an investment?
As for a single company IFRS9
What is control?
An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee
Three criteria for control
An investor controls an investee if and only if the investor satisfies all of these:
1. Power over the investee;
2. Exposure to, or rights to, variable returns (positive or negative) from its involvement with the investee; and
3. The ability to use its power over the investee to affect the amount of the investor’s returns.
How can power/control be obtained?
Power can be obtained directly from ownership of the majority of voting rights (shares) or can be derived from other rights, such as:
1. Rights to appoint, reassign or remove key management personnel who can direct the relevant activities
2. Rights to appoint or remove another entity that directs the relevant activities
3. Rights to direct the investee to enter into, or veto changes to, transactions for the benefit of the investor
4. Other rights, such as those specified in a management contract
When can subsidiaries be excluded?
IFRS 10 does not allow subsidiaries to be excluded except for when:
* The subsidiary is held for sale
* The subsidiary is immaterial
What must be followed when preparing CFS?
- Accounting policies should be uniform
- Intragroup trading and balances should be eliminated
- NCIs must be presented in the FS
- The year ends should be the same but if this is not possible, they should be within 3 months
In the past what could subsidiaries be excluded for but are no longer allowed to be excluded for?
In the past they could be excluded for:
* Severe long term restrictions on control (government coups or war)
* Dissimilar activities
Both of these are no longer allowed
Exemptions from preparing group accounts
A parent does not need to prepare group accounts if all the following are met:
1. The parent is itself a wholly-owned or partially owned subsidiary of another entity and its owners, (including those not otherwise entitled to vote) have been informed about, and do not object to, the parent not presenting CFS.
2. Its securities are not publicly traded
3. It is not in the process of issuing securities in public markets
4. The ultimate or intermediate parent publishes CFS that comply with IFRS
What date must the entity start being consolidated?
At the date of acquisition (when control is obtained)
What date must the entity stop being consolidated?
At the date of sale (when control is lost)
